Europe June 2016 Craig Menear Chairman, CEO & President Diane Dayhoff Vice President, Investor Relations
Forward Looking Statements and Non-GAAP Financial Measurements Certain statements contained in today s presentations constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, the demand for our products and services; net sales growth; comparable store sales; effects of competition; state of the economy; state of the residential construction, housing and home improvement markets; state of the credit markets, including mortgages, home equity loans and consumer credit; demand for credit offerings; inventory and in-stock positions; implementation of store, interconnected retail and supply chain initiatives; management of relationships with our suppliers and vendors; the impact and expected outcome of investigations, inquiries, claims and litigation, including those related to the 2014 data breach; issues related to the payment methods we accept; continuation of share repurchase programs; net earnings performance; earnings per share; dividend targets; capital allocation and expenditures; liquidity; return on invested capital; expense leverage; stock-based compensation expense; commodity price inflation and deflation; the ability to issue debt on terms and at rates acceptable to us; the effect of accounting charges; the effect of adopting certain accounting standards; store openings and closures; guidance for fiscal 2016 and beyond; financial outlook; and the integration of Interline Brands, Inc. into our organization and the ability to recognize the anticipated synergies and benefits of the acquisition. These forward-looking statements are based on currently available information and current assumptions, expectations and projections about future events, and actual results could differ materially from our expectations and projections. You should not rely on our forward-looking statements as they speak only as of the date hereof, and we undertake no obligation to update these statements to reflect subsequent events or circumstances except as may be required by law. Additional information regarding risks and uncertainties is described in Item 1A, "Risk Factors," and elsewhere in our Annual Report on Form 10-K for our fiscal year ended January 31, 2016 and our subsequent Quarterly Reports on Form 10-Q. Today s presentations are also supplemented with certain non-gaap financial measures. We believe these non-gaap financial measures better enable management and investors to understand and analyze our performance by providing them with meaningful information relevant to events of unusual nature or frequency that impact the comparability of underlying business results from period to period. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. Reconciliations of the supplemental information to the comparable GAAP measures can be found on our Investor Relations website at ir.homedepot.com. 2
Discussion Overview Financial Results & Targets Our View of the U.S. Home Improvement Market Strategic Framework 3
First Quarter Fiscal 2016 Results ($ Millions USD, except per share data) Q1 2016 Q1 2015 V% Sales $22,762 $20,891 9.0% Comp Sales 6.5% 6.1% Gross Profit $7,791 $7,179 8.5% Gross Profit Margin 34.23% 34.36% -13 bps Total Operating Expenses $4,714 $4,582 2.9% Operating Profit $3,077 $2,597 18.5% Operating Profit Margin 13.52% 12.43% 109 bps Net Earnings $1,803 $1,579 14.2% Diluted Earnings Per Share $1.44 $1.21 19.0% 19.0% Earnings Per Share Growth in Q1 2016 4
Fiscal 2016 Guidance 1) (As of May 17, 2016) Sales growth ~6.3% Comp store sales growth ~4.9% Diluted EPS growth ~$6.27, or an increase of ~14.8% (after targeted share repurchases) Share repurchases Targeting $5 billion 1) All guidance based on GAAP 5
Long Term Targets: Fiscal 2018 Sales ~$13B $75B $13B $88.5B ~$101B Comps ~4% New Stores ~5 7 / Year Total CAGR Sales Growth ~4.7% - Includes Interline Brands 2012 2015 2018T All targets based on 52 week years 6
Long Term Targets: Fiscal 2018 Operating Margin Return on Invested Capital 28% ~35% 13.3% ~14.5% 2015 2018T 2015 2018T Return on invested capital is defined as net operating profit after tax for the trailing twelve months divided by the average of beginning and ending long-term debt and equity. Assumes excess cash used to repurchase shares. 7
Committed to Dividend Payout Annual Dividend Paid $2.76 $2.36 $1.88 $1.56 $0.90 $0.95 $1.04 $1.16 2009 2010 2011 2012 2013 2014 2015 2016F Announced 17% Increase in Quarterly Dividend in February 8
Shareholder Return Principals Return on Invested Capital Principle Maintain high return on invested capital, benchmarking all uses of excess liquidity against value created for shareholders through repurchases Adjusted debt/ebitdar ratio not to exceed 2x Dividend Principle Targeting payout at approximately 50% of earnings. Intend to increase dividend every year Share Repurchase Principle After meeting the needs of the business, use excess liquidity to repurchase shares, as long as value creating 9
Discussion Overview Financial Results & Targets Our View of the U.S. Home Improvement Market Strategic Framework 10
PFRI Still Below Historical Mean Private Fixed Residential Investment (PFRI) as a Percentage of GDP 10.0% PFRI as % of GDP (Nominal $) 60-year Avg. (Nominal) PFRI as % of GDP (Real $) 60-year Avg. (Real) 9.0% 8.8% 8.0% 7.0% 6.0% 5.4% 5.0% 4.5% 4.0% 3.6% 3.0% 2.6% 3.4% 2.0% 2.5% 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Q2 2015 Q4 2015 Source: BEA, Moody s Economy.com 11
Home Price Recovery Home Price Index S&P Case-Shiller National Home Price Index Year Over Year Percent Change 14% 14% 200 185 3% below peak 179 9% 7% 10% 10% 7% 11% 160 137 31% recovery since trough 2% 5% 5% 4% 3% 2% 120 (5%) (4%) (4%) (4%) 101 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar-16 (12%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: S&P Dow Jones, Moody s Economy.com (Hist.) Composite average from various sources (Est.) 12
Household Formation and Aging U.S. Housing Stock Supportive of Home Improvement Spend Household Formation Aging Housing Stock 2.5 2.0 1.5 1.0 0.5 0.0 1.9 Household Formation (m) 50-Year Average 0.4 1.3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 40+ yrs 30-39 yrs 20-29 yrs 10-19 yrs 0-9 yrs 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100% Source: Census, Moody s Economy.com (Hist.) Moody s Economy.com (Est.); John Burns Real Estate Consulting (Housing Stock) 13
Discussion Overview Financial Results & Targets Our View of the U.S. Home Improvement Market Strategic Framework 14
The Power of The Home Depot Interconnecting Retail Customer Experience Connecting service to customer needs Connecting stores to website and website to stores Capital Allocation Driven By Productivity And Efficiency Connecting activities to cost efficiency Product Authority Connecting assortment to local needs Connecting merchandise from supplier to shelf to customer 15
Target Market Opportunity $550B Addressable U.S. Market Products Home Improvement Retail Pro ($120B) Consumer ($180B) Services (Product Pull Through) U.S. Sales $80B Share 15% MRO Services Services (Labor) Sources: 2014 HIRI Reference Guide; 2015 Harvard University Emerging Trends in the Remodeling Market ; NAICS; and external market analysis 16
Growth Driven by The Professional Customer Renovator Remodeler Installation Services Maintenance, Repair, Operations (MRO) 17
Growth Driven by Interconnected Retail Shopping in New Ways Seamless Experience Higher Expectations 18
Key Productivity Initiatives Delivery Supply Chain Sync Assortment Optimization Freight Flow and Fulfillment Team 19